High Bitcoin ATM Transaction Fees are Hurting Crypto

The deeper you get into the cryptocurrency market, the less you may think you need to open your wallet and dole out cash. And while that is true to some extent, a phenomenon has emerged in the cryptocurrency industry that means you might want to keep that wallet close at hand.

This trend involves the rise of Bitcoin ATMs (BTM), which are a quick and easy way to buy bitcoin or other cryptocurrencies on the fly, whether at your local grocery store or social-distancing in a shopping mall. Some machines also support the sale of digital currencies in exchange for cash.

And while BTMs have made accessing BTC and other coins much more convenient, they are serving a greater purpose than that. These machines can serve as a lifeline to the 25% of American households who are not properly integrated into the banking systems, which means they are without access to traditional financial services and products. No stock market, no term deposits, no ETFs, no loans — nothing. This underbanked and unbanked population is part and parcel to bitcoin creator Satoshi Nakamoto’s vision. He stated in the Bitcoin whitepaper:

“A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.”

BTMs are a tool — some might say a ticket to freedom — for people to achieve this vision. Giving the unbanked or underbanked populace access to digital currencies via a bitcoin ATM means they have a chance to gain control over their financial future that would elude them in traditional financial circles.

In addition, it’s not just those who are left stuffing their cash under the mattress who are flocking to bitcoin ATMs. It’s also people who are not comfortable sharing their banking details with an exchange, including the baby boomer generation. There are also delays inherent with using a cryptocurrency exchange both to sign up in the first place and to wait for cryptocurrency transactions to settle.

Bitcoin Fee Debate

With more than 15,0000 bitcoin ATMs available globally, the lion’s share of which are sprinkled across the United States, it shouldn’t be too hard to gain access to one. Depending on the model, these machines can either be one-way, meaning that you can only buy bitcoin and possibly altcoins, or they are two-way, in which case you can also cash-out of your cryptocurrencies for cash. Bitcoin ATMs are the solution for people who either don’t have access to a cryptocurrency exchange and/or want access to coins in real-time — without having to sacrifice custodianship or rely on a third-party to hold the funds.

One hurdle to the mainstream popularity of BTMs, however, is the issue of sky-high fees charged by some operators — except for a handful of trustworthy companies. This practice of price gouging threatens not only to slow the growth of bitcoin adoption but to upend the very ideals that have built the cryptocurrency community into what it is today. Unfortunately, a few bad apples can spoil the bunch, and there are a number of leading ATM operators in the United States that are charging customers an eye-popping 20% or more in fees.

Here’s a glimpse of some of the highway robbery:

• BTC Depot — Don’t be shocked if you attempt to use a BTC Depot fee and are blown away by the fees. According to one Reddit member who accessed one of the company’s machines at a gas station, they were charged nearly 20% for their BTC purchase — They deposited $1,000 and received $820 in bitcoin. At the time, the BTC price was trading at $9,450 and the ATM charged $11,294 per bitcoin. Another user complained about a similar experience in which they were charged a whopping 18% plus a USD 3 transaction fee for a $150 BTC purchase.
• RockitCoin — If you stumble across a RockitCoin Bitcoin ATM, be prepared to pay a double-digit percentage fee as well. In this case, users complain of anywhere between 10% and 13% fees in addition to a USD 2 network fee attached to each transaction.

Fortunately, there are major players in the space that remain true to Satoshi’s vision for Bitcoin, including providing access to the unbanked. All you have to do is compare the fees to see the difference:

• Coinsource — According to Forbes, Coinsource’s fees are also in the double-digit percentage range. As of February 2020, these BTMs attach an 11% fee to bitcoin transactions, whether you’re buying or selling. These sorts of fees represent a more reasonable option for the underbanked to enter bitcoin.
• CoinFlip — With more than 1,100 bitcoin ATMs nationwide, CoinFlip boasts some of the lowest fees in the industry, at 6.99%. CoinFlip also run promotions that offer discounted services.

Privacy and Secrecy

The damage that is being done as a result of the bad apples in the bunch is both reputational and regulatory in nature, and the consequences could stifle tech innovation.

On one hand, these operators know that the customers who will be turning to their machines may be desperate to sock their money away in a secure environment, and they take advantage of this vulnerability. This taints the reputation of the entire market.

On the regulatory front, the high-fees are viewed as a tradeoff for the privacy and secrecy that accompany bitcoin ATMs, features that are inherent with illegal activities such as money laundering. This has placed a target on the backs of even the good bitcoin ATM operators, causing them to have to beef up their legal and compliance teams just to fend off any collateral damage.

Cash Is King

Coin ATM Radar, which is behind a crypto ATM locations map, argues that the cash payments feature is “the most critical part of bitcoin ATMs and the reason they charge higher fees than online exchanges.” Meanwhile, Jason Jawn, ATM integration advisor at LibertyX, disagrees, saying,

“Higher fees are charged because the only way to get bitcoin instantly is via cash.”

Jawn goes on to argue that while previously cash was the only way to operate in the “instant, non-custodial market” because of the “zero chargeback risk,” times have changed. He points to debit cards as an alternative to cold hard cash payments.

Best Offense Is a Good Defense

All in all, it seems that the best offense is a good defense when it comes to bitcoin ATMs. The industry is maturing to the point where users don’t have to settle for just one brand or even method. And now that bitcoin is reaching the mainstream more every day, it is more important than ever for users to do their research so as not to fall into the trap laid by some of these nefarious actors.